Pound (GBP) subdued despite stronger-than-expected inflation
The pound (GBP) slipped against some counterparts yesterday after hotter-than-forecast UK inflation failed to change expectations for Bank of England (BoE) interest rate cuts.
Headline inflation accelerated from 3.2% to 3.4% in December, but core inflation was unchanged at 3.2% and services inflation increased by less than markets had anticipated. As a result, investors continue to price in around 50 basis points of easing from the BoE over the coming year.
Sterling could remain under pressure today if the Confederation of British Industry’s (CBI) latest distributive trades survey points to a further contraction in retail sales volumes during January.
Euro (EUR) drifts lower amid data drought
The euro (EUR) weakened against stronger peers and traded unevenly elsewhere yesterday, as an absence of high-impact data left the single currency without clear support.
Remarks from European Central Bank (ECB) President Christine Lagarde also failed to lift sentiment. Lagarde suggested that US tariffs would likely have only a ‘minimal’ effect on inflation and reiterated that price pressures remain ‘under control’.
The focus today turns to the release of the ECB’s meeting minutes. Even so, broader external influences – including the euro’s inverse relationship with the US dollar (USD) – may play a more decisive role in shaping EUR movement.
US dollar (USD) stabilises but risks persist
The US dollar steadied somewhat yesterday, though it continued to cede ground to stronger rivals, as the recent USD selloff showed signs of losing steam.
Lingering worries over potential US-EU tensions, including tariff threats and the ongoing dispute over Greenland, remained in the background but did not spark another wave of heavy selling.
Later today, attention turns to the latest core PCE price index. Should the Federal Reserve’s preferred inflation gauge indicate that price pressures stayed elevated in November, expectations for US rate cuts could be pared back, lending the ‘greenback’ some support.
Canadian dollar (CAD) edges higher alongside oil
The commodity-linked Canadian dollar (CAD) firmed against some peers yesterday, supported by an upward bias in oil prices.
However, crude prices have struggled to hold on to gains so far today. Continued volatility in the oil market could translate into uneven trading conditions for the ‘loonie’.
Australian dollar (AUD) surges on strong employment data
The Australian dollar (AUD) rallied overnight after Australia’s latest labour market report far exceeded expectations. The unemployment rate fell from 4.3% to 4.1%, fuelling speculation that the Reserve Bank of Australia (RBA) could deliver a rate hike as soon as next month.
New Zealand dollar (NZD) lifted by AUD strength
The New Zealand dollar (NZD) also nudged higher overnight, with the ‘kiwi’ benefiting from its positive correlation with the Australian dollar.
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